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| A Statistics Korea official gives a press briefing on industrial productivity in July at Government Complex Sejong, Thursday. Yonhap |
Retail sales suffer steepest drop since July 2020
By Yi Whan-woo
Three key indicators of industrial productivity ― factory output, retail sales and facility investments ― all retreated last month, data showed on Thursday, casting a dark cloud over an economic recovery in the second half of this year.
The joint descent of these three indicators occurred for the first time since January, adding to concerns over a deepening economic slowdown as industrial productivity is closely associated with the twin engines of Korea's growth ― exports and private spending.
According to Statistics Korea, industrial output fell 0.7 percent in July from a month earlier, marking a month-on-month decline for the third time this year after a 0.2 percent fall in January and a 1.3 percent drop in April.
Industrial output went up 0.6 percent in May, while remaining unchanged in June.
Retail sales also posted a month-on-month fall in July of 3.2 percent ― the steepest decrease since July 2020 when it retreated 4.6 percent.
For this year, retail sales dropped for the third time following a decrease of 1.8 percent in January and 2.6 percent in April.
Facility investments displayed the sharpest month-on-month fall in more than 11 years, sliding 8.9 percent. They dropped 12.6 percent in March 2012 and fell three times this year _ 4.9 percent in January, 2.5 percent in March and 1.1 percent in June.
The Ministry of Economy and Finance attributed the joint declines in industrial output, retail sales and facility investments to "temporary factors" and added that "such a fall should not be interpreted as a sign of a disrupted course of economic recovery."
For instance, the month-on-month fall in retail sales, a gauge of private spending, was mainly attributed to weakened demand for cars compared to June when a special tax deduction in automobile purchases expired after five years.
The expiration was part of the government's efforts to diversify ways to collect taxes amid a shortfall in tax revenues. Retail sales of cars dropped 5.1 percent as a result.
Heavy rainfall in July also prompted people to avoid outdoor activities and resulted in an overall decline in the production of consumer goods.
"The trend of a recovery thus remains unchanged," the ministry said in a press release, referring to its belief that the economy will bounce back in the second half after struggling in the first half.
The government accordingly forecasts the economy will grow 1.4 percent in 2023.
While analysts agreed with the idea of economic growth gaining ground in the second half, they viewed that July's industrial productivity indicates a slower-than-expected pace of recovery for the remainder of 2023.
"The decrease in the three indicators of industrial productivity is affected by exports and private expenditure, and therefore, it can be said that such a decline reflects downside risks that disrupt recovery," said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).
He noted that semiconductor output fell 2.3 percent, while shipments fell 31.2 percent and inventories rose 4 percent between June and July, in the wake of an economic crisis in China, Korea's largest trading partner.
"Given the fact that China's economic trouble will not be resolved in a short period of time, a recovery may be slower than we expect although it will certainly make progress," Lee said.
Asking not to be named, a researcher at Woori Finance Research Institute voiced a similar view.
"The joint fall in industrial output, retail sales and facility investments in July shows it can possibly happen again by the year-end as long as risks associated with exports and private spending exist," he said.
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